Do Nepal has inherent strength in attracting MNCs?

Tulsi Jung Basnet

 

Do you think Nepal has inherent strength in attracting MNCs? If yes, in which areas and why?

If no, explain ten critical reasons to justify your argument. Give relevant examples.

 

A company engaged in producing and selling goods or services in more than one country is termed as

multinational company. MNC can be define as a parent company that

1. Engages in foreign production through its affiliates located in several countries,

2. Exercises direct control over the policies of its affiliates,

3. Implements business strategies in production, marketing, finance and staffing that transcend

national boundaries.

The importance of multinational enterprises has been growing in the world economy. Many MNC's

are establishing in various countries. New MNCs do not establish randomly in foreign nations. It is

the result of conscious planning by corporate managers. Nepal has inherent strength to attract MNCs'

in few areas but in most places it lacks to attract MNCs'. The reasons are explained below:

1. Market Size:

The market seeker is the model of the modern Multinational Company's that goes overseas to

produce and sell in foreign markets. Nepal is very small market with population size about 25

million to attract MNC. If the market is very small than MNC don't have much incentive to

invest in Nepal.

2. Political instability:

Nepal is going through political instability since long time. It has over come from the long

arm conflict and still there is no stable government. MNC are attracted towards the countries

which have stable political condition and Nepal fails to fulfill this condition to attract MNCs.

3. Geographical Condition:

The multinational company integrates the factor of production from various nations. Nepal is

landlocked country so to import raw materials, plant and machinery and other related things

for production, it has to rely on third country sea way or harbor. This is another major

difficulty that MNC have to face establishing in Nepal. So the geographical condition is not

much favorable for MNCs.

4. MNC trend:

The prevailing and past MNC's experience is not so good which make impact on new comers.

The famous American Multinational Company Kodak had withdrawn its investment from

Nepal due to political instability. Few other MNC like Colgate Palmolive, Dabur Nepal are

operating in unfavorable condition.

5. Growth motive:

An MNC expand its company is influenced with growth motive. Since Nepal is very limited

market for MNCs, it doesn't see it future growth investing in Nepal.

6. Competitive disadvantage:

Since Nepal lies in between two big economies which have more competitive advantage to

attract MNC than Nepal, so MNCs are more attracted to those countries rather than Nepal.

And other conditions required for MNC like market, labor cost, raw material, political

condition are more favorable for MNC in India and China. So Nepal has competitive

disadvantage to attract MNC than those countries.

7. Basic Infrastructure:

Nepal fails to provide basic infrastructure for MNC to operate. We can take irregular power

supply as one factor. Power supply is one inevitable factor required to run factories.

8. Liberal policy:

Nepal has no favorable rules and regulation required to attract MNCs. Nepal did not comply

with hire and fire rule of employee and also labor union are very strong which are supported

by political parties. Both are very unattractive for MNCs.

9. High Transportation Costs:

Transportation costs are like tariffs in that they are barriers which raise consumer prices.

When transportation costs are high, multinational firm's product will goes higher. Since

Nepal has only one way of transport that is road transport which is not so reliable and

expensive. So high transportation cost increases the cost of MNC and reduces profit which

distracts MNC to invest in Nepal.

10. Lack of Skill manpower:

Most MNCs are highly technological and have high tech machinery to operate. To operate

such equipment MNC requires high skill manpower to operate and Nepal cannot fulfill their

requirement. So due to lack of skilled manpower MNC are not interested to invest in Nepal.

11. Market competition

Due to higher transportation cost, imported raw material and expensive factor cost of

production the cost of production of MNC goes high which cannot compete with the product

of Chinese and Indian product. So the market competition is another factor that MNC do not

want to invest in Nepal

12. Technology:

Most MNCs are highly technological and required high tech machinery to operate. To support

such technology Nepal has not sufficient technological base. So due to lack of supportive

technology MNC feel unfavorable to invest in Nepal.

13. Exchange Rate Fluctuations

Exchange rate has huge impact on cost of investment. Nepal has fixed exchange rate with

India and floating exchange rate with rest of the world. Excessive fluctuations of exchange

rate distract the MNC to invest in Nepal.

 

Tulsi;

A very good write up. All the best for your final exam. 88/100